Helping you get into your property without a deposit: Family Guarantees

October 27, 2015
Robert Causovski

Get your home sooner when a family member guarantees part of your home loan.

A guarantor is a third party to a home loan, helping you to get a loan by offering additional security support. Guarantors are generally limited to spouses or immediate family members. 

A helping hand to buy your home

Many lenders allow a family member to help you to buy your own home by providing additional security. The person providing this assistance is known as a guarantor.

guarantor, is linked to a loan by a guarantee. This guarantee can be released and the guarantor’s responsibility stopped without the loan being repaid in full. To use a guarantor, you must be able to service the entire loan on your income.

How does it work?

guarantor allows the equity in his or her own property to be used as additional security for your loan. The primary security for the loan will be your property, but the lender will also take a mortgage over your guarantor’s property. This mortgage will not support the loan directly but will be used to support a guarantee from your guarantor.


Who can be a guarantor?

Guarantors are generally limited to immediate family members. Normally, this would be a parent but guarantors can include siblings and grandparents. Some lenders will allow extended family members and even ex-spouses to be a guarantor to a loan, but this varies depending on the lender. 


How will having a guarantor help your loan application?

If you don't have enough deposit but do have the ability to make the required home loan repayments, a guarantor could help you to secure additional funds to buy a home.Saving a deposit can be daunting and very hard to do when you're also paying rent. By having aguarantor, you may be able to borrow the full purchase price and sometimes even the costs associated with purchasing property. This varies across lenders - some will still insist that you contribute some of your own equity towards the purchase, even if you have a guarantor.Another benefit of having a guarantor is that you may save thousands of dollars by avoiding Lenders Mortgage Insurance (LMI).


Example: Family Guarantee

Lets look at an example of buying a $500,000 property.
Normally you would need to have saved up at least $25,000 deposit PLUS the associated costs (stamp duty and legal).  Assuming the lender allows a 95% borrow, you would also be required to pay about $12,500 Lenders Mortgage Insurance.
Where a family guarantee can help.
If the purchase price of a property $500,000, and you have enough money saved to cover the stamp duty and legal costs. Obviously you will need to borrow the full $500,000. 
The Guarantor has a property worth $600,000 which they own outright.  The Guarantor can “lend” you equity of $100,000 which then acts as the deposit (20%).  The loan of the full $500,000  is in the kids name only and are not required to pay the mortgage insurance saving $12,500.  The $500,000 is made up of $400,000 (80% borrowing against purchased property) and $100,000 (20% borrowing against guarantor property).
Posted in: Home loans

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